U.S. Bancorp Profit Rises -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (October 19, 2017).

U.S. Bancorp, a bellwether for regional banks in the U.S., said its third-quarter profit rose to a record level, but analysts raised concerns about future loan growth.

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The bank Wednesday said that net income increased 4%, to $1.56 billion, or 88 cents a share, compared with $1.5 billion, or 84 cents a share, in the same period a year ago. Revenue gained 4%, to $5.61 billion. Per-share earnings were in line with analyst expectations, while revenue slightly beat estimates.

U.S. Bancorp's shares fell 1.1%, to $53.27, on a day when bank stocks and the broader stock market rallied.

Like some other banks, U.S. Bank has benefited as the Federal Reserve has raised interest rates this year, which allows banks to charge more for loans. The bank's net interest income was up 8% from a year ago.

Chief Financial Officer Terry Dolan said in an interview that the bank had turned in a strong quarter, noting that it was the first time in nearly three years that the bank achieved positive operating leverage. But he acknowledged that loan growth was lower than the bank had previously expected.

After the election of Donald Trump, bankers and investors predicted that lending to businesses would take off, but the growth of such loans has faltered. "I think we went into the year believing that commercial and corporate lending would be reasonably strong and robust," Mr. Dolan said. "But Washington always takes longer than you think it's going to."

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Lending to businesses has been a key factor that analysts are watching this year at regional banks, the group of firms that are smaller than the big, national banks, yet bigger and broader in reach than community banks.

At U.S. Bank, the largest regional lender by assets, average loans rose 3% from a year ago. Consumer loans, including residential mortgage loans and credit card loans, also rose. Commercial loans increased, but commercial mortgages were down.

Some analysts expressed disappointed by the level of loan growth, which has slowed since last year, and executives said Wednesday that the growth was lower than what they would have expected over the long term. They also said that businesses' borrowing was related to mergers and acquisitions more than core expansions.

Evercore ISI analyst John Pancari said U.S. Bank's earnings represent a broader trend of regional banks in tight competition with the bigger, universal banks for business customers. Some of U.S. Bank's slowing loan growth is from the bank's conservative underwriting principles, Mr. Pancari said. But investors also took note of the bank's indications that loan growth wasn't going to pick up much in the fourth quarter either.

U.S. Bank executives said Wednesday that the slower loan growth was partly due to corporate customers paying off bank loans to instead borrow from the bond market, repeating an explanation that they and other banks had given last month. Executives said some customers are still waiting for more clarity on the Trump administration's tax policy before investing in their businesses.

The executives also said they had expected quarter-over-quarter loan growth to stay steady in the fourth period, which was also a disappointment to some analysts hoping for a return to stronger increases. The bank's quarter-over-quarter loan growth was in line with what executives had predicted last month, though they had lowered their expectations from a previous forecast.

Income from treasury-management fees, trust and investment-management fees and corporate-payment products rose from a year ago.